Political turmoil and terrorism threats across marketcapitals from Ankara to Kiev, along with growing concern aboutbad debt in China's shadow banking system, caused a full-scalepullback across all risk assets.

As a result, some investors are starting to see attractivevalues in these markets. Sentiment remains weak, however, so theactions of emerging market policymakers will determine whetherinvestors take advantage of low valuations or opt to preservecapital, strategists say.

"From our view, the valuations in this sector, be it hardcurrency (debt), local currency (debt), EM FX, corporates, arebecoming compelling. Look, that is the first time I have beeneven close to bullish on emerging markets for a while. But it ison a relative risk/return basis," said Paul DeNoon, senior debtportfolio manager at AllianceBernstein in New York.

"The market has discounted a lot of bad news. I think with alot of policy responses in the better countries, someopportunities have developed," he said, pointing to relativevalue in Indonesian, Brazilian and Turkish credits which havefallen far and fast.

In just a month, the broad MSCI Emerging Markets stock indexis down 7.5 percent versus a decline of 5 percent forall of 2013, a year when developed markets surged by 30 percent.The benchmark U.S. S&P 500 stock index is down 3.6 percentyear-to-date.

Yield spreads between emerging market sovereign debt andcomparable U.S. Treasuries widened by nearly 50 basis points,according to JPMorgan's benchmark indices, the largest one monthincrease since June of last year when the Fed's first hint atreducing its monetary stimulus rattled global markets.

PLAYING DEFENSE

Turkey, India and South Africa have recently surprisedmarkets with aggressive defenses of their currencies. Theiractions come as the Fed moves toward more normal monetary policythat will cause less money to move abroad in search of higherreturns.

Emerging market currencies have lost ground against the U.S.dollar and the euro. Bank of America Merrill Lynch (BAML)research said that in aggregate, emerging market currencies arenow undervalued by about 2 percent, a sharp swing from 2010-2013period when they were considered overvalued.

The bank sees cheap medium-term bonds in South Africa andBrazil. Mexico, Poland, Hungary and Malaysia look to be fairlypriced, they said.

The aggressive rate hikes from central banks in troubledcountries could stabilize those currencies, but it comes at acost. Higher rates could slow growth in certain countries thatare already struggling, and the weak demand from China means itwill be more difficult for countries to export their way out oftrade imbalances.

As fundamentals have not improved, emerging market countrieswith negative balance of payments metrics are in danger of moreunderperformance in their currencies.

"Our EM strategists believe some EM equity markets havefurther to fall, and that they require significant currentaccount rebalancing before bottoming," wrote Goldman Sachs.

STOCKS SUFFER

The Institute of International Finance wrote in its latestcapital flows report on emerging markets that the asset classnow has a price-to-earnings ratio for the coming 12 months,which gives a clue as to future corporate earnings, at about 9times, below the decade average of 11 times. By comparison,developed markets are trading at a forward P/E of 15, above thelong-run average of about 13 times earnings.

"Overall emerging market valuation has now fallen to verylow levels," the IIF wrote on Jan 30.

To be sure, the IIF cautions that not every market is goingto rebound. Many emerging markets - such as the now-famous'fragile five' - face challenges in implementing structuralreforms. These five - Brazil, India, Indonesia, South Africa andTurkey - are considered the emerging nations with the weakestbalance of payment positions and most monetary policyuncertainty.

"The broad weakness in expected earnings over the next 12months (with only China expected to see much pickup) is anotherwarning that 'cheap' may not translate to 'rally' any timesoon," the IIF, an association representing big banks, wrote.

Those countries have responded, to a point. After Turkey'scentral bank hiked its benchmark interest rate by 425 basispoints, BAML said it is time do some "serious bottom fishing inTurkey."

"We think it's now right to be overweight on a full 2014view," BAML said.

In addition to Turkey, central bankers in India and SouthAfrica have taken aggressive action, which one veteran EManalyst said will be the deciding factor going forward.

"Policymakers could change valuation perceptions," saidDaniel Tenengauzer, head of Americas research at StandardChartered in New York.